Household debt-to-disposable-income ratio edges lower as income rises

The ratio of how much Canadians owe compared with how much they earn improved in the first quarter for the first time since steadily worsening through most of last year.

OTTAWA — The ratio of how much Canadians owe compared with how much they earn improved in the first quarter for the first time since steadily worsening through most of last year.

But economists said the improvement was tiny and would do little to change the Bank of Canada’s view that high household debt continues to be a key risk to the economy.

“Growth in personal disposable income can be quite volatile on a quarter-to-quarter basis, and the very slight decline in the ratio really looks more like a plateau than the beginning of a trend decline,” TD Bank economist Leslie Preston wrote in a note.

“Moreover, lower interest rates have led to Canada’s housing market heating up this spring, which will likely lead to an acceleration in debt growth in the second quarter.”

Statistics Canada said Friday that ratio of household debt to disposable income edged down 163.3 per cent for the first three months of the year from 163.6 per cent at the end of last year.

That means households owed about $1.63 in consumer credit, mortgage and non-mortgage loans for every dollar of disposable income.

The slight improvement came as disposable income growth outpaced borrowing by rising 0.9 per cent compared with 0.7 per cent for household credit market debt.

BMO senior economist Benjamin Reitzes said the size of the improvement in the ratio was a bit of a disappointment.

“The ratio fell in first quarter for the sixth consecutive year, but the average drop in the prior five years was 0.9 percentage points,” Reitzes said.

Low interest rates have made it easier for Canadians to borrow, contributing to the rise in debt in recent years. However, many have raised concerns about what will happen when interest rates and the cost of borrowing start to rise again.

The Bank of Canada listed household debt and the persistently overvalued real estate market as key vulnerabilities in its financial system review earlier this week.

Total household credit market debt reached $1.841 trillion at the end of the first quarter, up 0.7 per cent from the previous quarter. Consumer credit debt was $519.5 billion, while mortgage debt stood at $1.197 trillion.

However, even with the increase, data looking at the ability of Canadians to handle the debt improved with both the debt-to-asset and debt-to-net worth ratios lower.

Statistics Canada said household net worth rose 3.4 per cent in the first quarter, boosted by gains in real estate and financial assets such as mutual funds and pension assets.

Non-financial assets, primarily real estate, rose 1.2 per cent while net financial assets were up 6.2 per cent.

Household net worth rose 3.2 per cent to $241,800 per capita.

Just Posted

Some central Alberta businesses pledge to pay youth $15 ahead of wage cut that kicks in Wednesday

Jo(e) Social Media Inc. and Kavaccino’s pledge to pay youth more than $13 an hour

Astronaut David Saint-Jacques returns to Earth, sets Canadian space record

LONGUEUIL, Que. — David Saint-Jacques returned to Earth on Monday after more… Continue reading

Red Deer property taxes are due Friday

City warns late fees will be applied after June 28

Cambodia charges 7, including Chinese, in building collapse

SIHANOUKVILLE, Cambodia — A court in Cambodia said Tuesday that seven people,… Continue reading

WATCH: Hundreds run in the 5K Foam Fest in Red Deer

The annual event took place at Heritage Ranch on Saturday

Skinny Vancouver Whitecaps eager to pick up points on four-game road swing

VANCOUVER — The Vancouver Whitecaps know there’s work to be done as… Continue reading

World Cup exit shows Canada will miss the remarkable Christine Sinclair

PARIS — Christine Sinclair has put Canadian soccer on her shoulders for… Continue reading

Police release more than 1,000 files from Smollett probe

Chicago police on Monday released more than 1,000 files from the investigation… Continue reading

Tributes to Michael Jackson flow on 10th death anniversary

LOS ANGELES — Michael Jackson’s estate paid tribute to his artistry and… Continue reading

Alberta government, Opposition swap accusations, attacks in earplug debate

EDMONTON — Alberta’s earplug debate got louder Monday as the Opposition NDP… Continue reading

‘Clients fall off:’ Calgary program helps recently released prisoners with hep C

CALGARY — Imagine adjusting to life after serving prison time, then add… Continue reading

Opera star Measha Brueggergosman recovering from double bypass surgery

CALGARY — Canadian opera star Measha Brueggergosman is recovering from heart surgery,… Continue reading

Who you gonna call? Alberta rattlesnake wrangler keeps serpents, citizens safe

LETHBRIDGE — One rattlesnake got caught in freshly laid tar under someone’s… Continue reading

Most Read